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Leading Change in Global Organizations - Chapter 1


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What happens when leaders try to transform the culture of their organizations? What approaches are most likely to lead to success? Which path will have the greatest impact on the performance of the business?

Leading Culture Change in Global Organizations offers a practical look at the approaches that a set of successful companies have used to implement cultural change within their organizations. In this book, the authors summarize over 20 years of tracking culture transformations in seven different global organizations to illustrate the critical set of dynamics that firms need to manage in order to remain competitive

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Leading Change in Global Organizations - Chapter 1

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  2. 2. Denison c01.tex V2 - 04/23/2012 5:50pm Page 1 1 BUILDING A HIGH-PERFORMANCE BUSINESS CULTUREEvery human organization creates a unique culture all its own.From a small family business operating in its hometown, to alarge global corporation spanning national cultures and timezones, each organization has a distinct identity. Tribes, families,cults, teams, and corporations all develop a complex and uniqueidentity that evolves as they grow through the years. Their culture always reflects the collective wisdom that comesfrom the lessons people learn as they adapt and survive togetherover time. Thousands of interlocking routines knit together thefabric of the firm and translate timeless knowledge into timelyaction on a daily basis. The traditional habits and customs thathave kept the firm alive and well over time speak loud and clear.And when uncertainty rears its ugly head, the culture rules!All members of the corporate tribe tend to fall back on theirtried-and-true methods in order to weather the storm. Yet try as we might to look to the future, the knowledgeembedded in our corporate cultures is always yesterday’s knowl-edge, developed to meet the challenges of the past. What partof the past should we preserve for the future? How should weadapt the principles of the past to address the problems of thefuture? How should we go about the delicate task of relegating theobsolete practices of the past to the ‘‘corporate museum’’ so thatthey don’t grow into obstacles that hold back our best practicesand frustrate our best customers? 1
  3. 3. Denison c01.tex V2 - 04/23/2012 5:50pm Page 22 LEADING CULTURE CHANGE IN GLOBAL ORGANIZATIONS Some leaders try to ignore these challenges and concentrateon their expense ratios, analyst reports, discounted cash flows,and their next acquisition. Bad idea. Other top executives seeshaping and managing the corporate culture as one of their mostimportant challenges. As Wells Fargo Bank CEO John Stumpfsaid, ‘‘It’s about the culture. I could leave our strategy on anairplane seat and have a competitor read it and it would notmake any difference.’’1 Former IBM Chairman Lou Gerstnermade the same point: ‘‘Culture isn’t just one aspect of thegame—it is the game. In the end, an organization is no morethan the collective capacity of its people to create value.’’ 2 Thepeople make the place.3 The people create the organization. Thepeople create the technology. The people organize the funding.The people develop the markets. Without implementation andalignment, there is no strategy, only a plan. It can be easy to forget that the people make the place, becausethe structures that we create often outlive our memory of howand why we created them to begin with, leaving us feeling like weare the victims rather than the visionaries of the systems that wecreate. But over the long haul, one of the most powerful thingsthat a company’s leaders can do is to create a unique characterand personality for their organization that fits their businessenvironment and distinguishes them from the competition. But where do you start? Research over the past two or threedecades has shown that an organization’s culture has an impacton business performance in four main ways: • Creating an organization’s sense of mission and direction • Building a high level of adaptability and flexibility • Nurturing the involvement and engagement of their people • Providing a consistency that is strongly rooted in a set of core values These are the cultural traits that most clearly affect businessperformance, so this is where the journey must begin.
  4. 4. Denison c01.tex V2 - 04/23/2012 5:50pm Page 3 BUILDING A HIGH-PERFORMANCE BUSINESS CULTURE 3 But can something as complex as corporate culture actuallybe managed? The task is daunting—but doing nothing is notan attractive option! Organizational culture guru Edgar Scheinsaid it best: ‘‘Either you manage the culture, or it managesyou.’’ 4 Managing culture change is certainly not easy, but thereare plenty of real-life examples of global companies who havesucceeded. This book is built around seven of those examples. What Is Corporate Culture? Why Is It Important?At the climax of the annual holiday party of one rapidly growingAmerican company, hundreds of balloons are released from theceiling. Inside each balloon is a crisp new US$100 bill. Whoeverscrambles the hardest gets the most money! The lesson is simple,fun, and more powerful than all the personnel policy handbooksin the world. It helps capture the essence of some of the keydefinitions of corporate culture: Culture is both ‘‘the way we dothings around here’’ and ‘‘what we do when we think no one islooking.’’ Culture is ‘‘the code, the core logic, the software of themind that organizes the behavior of the people,’’ and ‘‘the lessonsthat we have learned that are important enough to pass on to thenext generation.’’ 5 Schein’s classic approach divides culture into three levels.6He argues that basic underlying assumptions lie at the root ofculture and are ‘‘unconscious, taken-for-granted beliefs, percep-tions, thoughts, and feelings.’’ Espoused values are derived fromthe basic underlying assumptions and are the ‘‘espoused justifi-cations of strategies, goals and philosophies.’’ Finally, at the toplevel are ‘‘artifacts,’’ defined as the ‘‘visible, yet hard to decipherorganizational structures and processes.’’ Consider the iceberg image presented in Figure 1.1. Onlyabout 10 percent of an iceberg is visible above the water;90 percent is below the surface. But the inertia of the part that isbeneath the surface is what will sink your ship. Similarly, it is oftenthe parts of the culture that we can’t see that will get us into
  5. 5. Figure 1.1. Culture Reflects the Lessons Learned Over Time Artifacts, behaviors, Visible Symbols and norms are visible and tangible Lessons Culture Survival Personal values andattitudes are less visible,but can be talked about Underlying Principles Denison c01.tex Underlying beliefs and assumptions aresubconscious, invisible, and rarely questioned V2 - 04/23/2012 5:50pm Page 4
  6. 6. Denison c01.tex V2 - 04/23/2012 5:50pm Page 5 BUILDING A HIGH-PERFORMANCE BUSINESS CULTURE 5trouble. This figure also reminds us that the culture is learned—itis built up from the accumulated principles that we learn as wesurvive together over time. The lessons from the past shapeour survival strategies for the future. Winston Churchill saidsomething similar about architecture: ‘‘We shape our buildings;thereafter they shape us.’’7 So our mindset and worldview shape the way that we usethe lessons of the past to forge the strategies of the future.How well are business leaders doing? Well, the record is not allthat encouraging. Phil Rosenzweig’s best seller The Halo Effect 8explains that when successful corporations become legends, theirbusiness practices are imitated for both good reasons and bad.Neither researchers nor executives have done particularly well atseparating the principles and practices that truly impact businessperformance from those that are simply imitated because a cor-poration enjoyed great success and everyone now wants to be likethem. Telling fashion from function is often harder than it looks. There’s a long tradition of studying ‘‘superstitious learning,’’which probably has its roots in Malinowski’s study of the ‘‘cargocult’’ of the Trobriand Islanders in Papua New Guinea nearlyone hundred years ago.9 Richard Feynman tells the story with anexample from the end of World War II: During the war they saw airplanes land with lots of good materials, and they want the same thing to happen now. So they’ve arranged to imitate things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head like headphones and bars of bamboo sticking out like antennas—he’s the controller—and they wait for the airplanes to land. They’re doing everything right. The form is perfect. It looks exactly the way it looked before. But it doesn’t work. No airplanes land.10 You may be thinking ‘‘Surely modern corporate ‘tribes’ mustdo far better at separating fact from fiction and deciding what
  7. 7. Denison c01.tex V2 - 04/23/2012 5:50pm Page 66 LEADING CULTURE CHANGE IN GLOBAL ORGANIZATIONSreally works than the ancient tribes of Papua New Guinea!’’ Well,let’s not jump to conclusions. Many of the recent accounts ofthe subprime mortgage crisis emphasize the growing power of thesystem that was created.11 Mortgage loan officers made a biggerbonus if they booked more subprime loans. Fee income from newloans was high enough that even bad loans were good businessfor the banks. These government-guaranteed loans were sold toother banks, who created securities that were certified AAAgrade. Investors around the world grabbed these up because theypaid a higher rate of return. This system created an insatiabledemand for banks to find even more prospective buyers whowould borrow beyond their means in hopes of ‘‘flipping’’ theirnew home to take advantage of rising real estate prices beforetheir balloon payment came due. This system paid off so well thatin the short term everyone kept looking for the next deal longafter the system had stopped paying off. Thus we see how ritualcan become separated from reality even in the most sophisticatedorganizations.12 How Corporate Culture Impacts Business PerformanceOver the past twenty years, we’ve studied the link betweenorganizational culture and business performance. We’ve beentrying to understand the cultural traits that explain the differencebetween high- and low-performing organizations.13 These studieshave examined the link between the four basic traits in ourmodel—mission, adaptability, involvement, and consistency—andperformance measures such as profitability, sales growth, qual-ity, innovation, and market value. Out of this research, we’vedeveloped a way to measure culture, and we’ve created a widelyused Culture Survey designed to help organizations focus onthe issues that need attention and move beyond a discussionof employee satisfaction, engagement, and morale, to better
  8. 8. Denison c01.tex V2 - 04/23/2012 5:50pm Page 7 BUILDING A HIGH-PERFORMANCE BUSINESS CULTURE 7understand the actions they can take to build their organizationsfor the future. Figure 1.2 shows what we’ve found out about‘‘What Counts.’’ • Mission. Successful organizations have a clear sense of pur-pose and direction that allows them to define organizational goalsand strategies and to create a compelling vision of the organiza-tion’s future. Leaders play a critical role in defining mission, buta mission can only be reached if it is well understood, top to bot-tom. A clear mission provides purpose and meaning by defining acompelling social role and a set of goals for the organization. Wefocus on three aspects of mission: strategic direction and intent, goalsand objectives, and vision. • Adaptability. A strong sense of purpose and direction mustbe complemented by a high degree of flexibility and responsive-ness to the business environment. Organizations with a strongsense of purpose and direction often are the least adaptive andthe most difficult to change. Adaptable organizations, in contrast,quickly translate the demands of the organizational environmentinto action. We focus on three dimensions of adaptability: creatingchange, customer focus, and organizational learning. • Involvement. Effective organizations empower and engagetheir people, build their organization around teams, and develophuman capability at all levels. Organizational members are highlycommitted to their work and feel a strong sense of engagement andownership. People at all levels feel that they have input into thedecisions that affect their work and feel that their work is directlyconnected to the goals of the organization. We focus on threecharacteristics of involvement: empowerment, team orientation, andcapability development. • Consistency. Organizations are most effective when theyare consistent and well integrated. Behavior must be rooted ina set of core values, and people must be skilled at putting thesevalues into action by reaching agreement while incorporating
  9. 9. Figure 1.2. What Counts Adaptability External Focus MissionPattern . . . Trends . . . Market Strate Direction . . . Purpose . . . Blueprint ational Direct gic aniz Translating the demands Org earning i & Int on Defining a meaningful of the business environment L ent long-term direction er G Ob oa for the organization into action om s je u c ls ives Fo t s Cu c & “Are we listening “Do we know where t to the marketplace?” we are going?” Chan g in ge Visio Creat n Flexible Beliefs and Stable Assumptions & I rd in ati o n Empowe ratio n nteg rme o Co nt Denison c01.tex Consistency Involvement Systems . . . Structures . . . t Or en Commitment . . . Processes Te n am em ieOwnership . . . Responsibility ta re tio n Ag Defining the values and Ca V2 - 04/23/2012 Building human capability, systems that are the D e pa bility C oreownership, and responsibility velo s basis of a strong culture pment Va l u e “Are our people aligned “Does our system and engaged?” Internal Focus create leverage?” 5:50pm Page 8
  10. 10. Denison c01.tex V2 - 04/23/2012 5:50pm Page 9 BUILDING A HIGH-PERFORMANCE BUSINESS CULTURE 9diverse points of view. These organizations have highly commit-ted employees, a distinct method of doing business, a tendency topromote from within, and a clear set of do’s and don’ts. This typeof consistency is a powerful source of stability and internal integra-tion. We focus on three consistency factors: core values, agreement,and coordination and integration. Like many contemporary models of leadership and organi-zational effectiveness, this model focuses on a set of dynamiccontradictions or tensions that must be managed.14 As Scheinand others have noted, effective cultures always need to solve twoproblems at the same time: external adaptation and internal inte-gration. Four tensions are highlighted by the model: the trade-offbetween stability and flexibility and the trade-off between inter-nal and external focus are the basic underlying dimensions of theframework.15 In addition, the diagonal tensions between internalconsistency and external adaptability, and the ‘‘top-down’’ versus‘‘bottom-up’’ tension between mission and involvement exem-plify some of the competing demands that organizations face. For each of these dynamic contradictions, it is relatively easyto do one or the other, but much more difficult to do both. Organi-zations that are market focused and aggressive in pursuing everyopportunity often have the most trouble with internal inte-gration. Organizations that are extremely well integrated andcontrolled often have the hardest time focusing on the customer.Organizations with the most powerful top-down vision oftenfind it difficult to focus on the bottom-up dynamics needed toimplement that vision. Effective organizations, however, find away to resolve these dynamic contradictions without relying on asimple trade-off. American novelist F. Scott Fitzgerald expressedthe same concept when he said that ‘‘the test of a first rateintelligence is the ability to hold two contradictory ideas at thesame time and still retain the capability to function.’’16
  11. 11. Denison c01.tex V2 - 04/23/2012 5:50pm Page 1010 LEADING CULTURE CHANGE IN GLOBAL ORGANIZATIONS At the core of this model we find underlying beliefs andassumptions. Although these deeper levels of organizationalculture are difficult to measure, they provide the foundationfrom which behavior and action spring. Basic beliefs andassumptions about the organization and its people, thecustomer, the marketplace and the industry, and the basic valueproposition of the firm create a tightly knit logic that holds theorganization together. But when organizations are facing changeor encountering new challenges from the competition, this coreset of beliefs and assumptions, and the strategies and structuresthat are built on this foundation, come under fire. When thathappens, the organizational system and the culture that holds ittogether need to be reexamined. Some Real ExamplesThe concepts in this model were developed by listening tohundreds of stories from organizations large and small, public andprivate, old and new, successful and unsuccessful, all over theworld. To illustrate how central these four traits are to real-worldbusiness success, let’s now consider four well-known examples:IKEA, Apple, Ritz-Carlton, and Toyota.IKEA: Mission Grows Out of Core Beliefsand AssumptionsIKEA founder Ingwar Kamprad grew up in the hardscrabblefarmlands of southern Sweden and became an entrepreneur atan early age. By 1976, well established in the Swedish furniturebusiness, he summarized his key principles of doing businessin a little book called A Furniture Dealer’s Testament.17 It isremarkable how many of the principles described in this book arestill alive at IKEA over thirty years later. Like most great organizations, Kamprad’s company has notjust produced profits but has also tried to serve a higher purposein the world. IKEA brings style, value, and a better life to many.
  12. 12. Denison c01.tex V2 - 04/23/2012 5:50pm Page 11 BUILDING A HIGH-PERFORMANCE BUSINESS CULTURE 11The company’s products are designed for the global everyman,combining frugality, innovation, and style, using environmentallyfriendly materials. Everyone deserves the opportunity to be partof the IKEA revolution. What is good for our customers is also, in the long run, good for us. This is an objective that carries obligations. . . . The objective must be to encompass the total home environment; that is, to offer furnishings and fittings for every part of the home whether indoors or outdoors. . . . It must reflect our way of thinking by being as simple and straightforward as we are ourselves. It must be durable and easy to live with. It must reflect an easier, more natural, and unconstrained way of life.18 In his book, Kamprad also expressed strong beliefs about howIKEA should operate, stressing the simplicity and self-relianceof an individual who today is worth over $30 billion but stillcounts every penny like it was his last. Consider his thoughts onsimplicity: Bureaucracy complicates and paralyzes! Exaggerated planning is the most common cause of corporate death. We do not need fancy cars, posh titles, tailor-made uniforms or other status symbols. We rely on our strength and our will.19 IKEA is a terrific example of how a global business strategycan grow from the core beliefs and assumptions of the founder.Consider just one key element of the IKEA system: the flatpack.As all loyal IKEA shoppers know, after following the one-way corridor through the store, looking at the kitchens and thebedrooms, and stopping at the restaurant for a coffee or light meal,you eventually make your way to checkout and finally pick upyour purchases. They are all packed in flat boxes designed to takehome and assemble yourself. You get the home entertainment atno extra charge!
  13. 13. Denison c01.tex V2 - 04/23/2012 5:50pm Page 1212 LEADING CULTURE CHANGE IN GLOBAL ORGANIZATIONS Where did this brilliant strategic innovation come from? Wasit the result of an expensive study from a leading consultancy? Oran outgrowth of a corporate innovation center designed to makeIKEA more customer centric? No way! In 1952, one of IKEA’s first employees, Gillis Lundgren, had aproblem. He was trying to load a table into his Volvo to deliver toa customer. It didn’t fit. Gillis thought, ‘‘God, what a lot of spacethat takes up! Let’s take the legs off and put them under the tabletop.’’20 Voil` ! Global strategy. The rest is just implementation. By a1956, this practice was standardized and has been an essential partof the IKEA experience ever since. The current system has contin-ued to build on these key principles established in the early days. IKEA’s strong sense of mission and powerful corporate cultureare not without their limitations. Growth has been steady, butrelatively slow, especially given the dramatic enthusiasm of theircustomers. IKEA has never made much of an impact in the officefurniture market, mostly because very few corporations want toassemble their own office furniture. Expanding to countries thatare farther and farther away from their Swedish homeland hasalso presented some challenges. Successful franchisees who dolike ‘‘fancy cars, posh titles, tailor-made uniforms, or other statussymbols,’’ have also posed difficult choices for IKEA. But overall,‘‘The IKEA Way’’ has been a central part of the fifty-year journeyfrom an entrepreneur’s dream to a global icon.Apple: Adaptability Leads the Marketplaceinto the FutureSince Apple’s founding in 1976 in a garage in Cupertino, Cali-fornia, its people have built their success around an unparalleledunderstanding of their customers’ tacit needs. They deliver theirtechnology to their customers in a way that shapes the customers’desires. Time and again, they have developed new products thattheir customers didn’t really know they needed until they foundout that they couldn’t live without them. As cofounder Steve
  14. 14. Denison c01.tex V2 - 04/23/2012 5:50pm Page 13 BUILDING A HIGH-PERFORMANCE BUSINESS CULTURE 13Jobs put it, Apple has focused their attention on developing ‘‘toysfor yuppies,’’ while their competitors were often focused on theMHz of their new CPUs.21 A powerful recent example of Apple’s genius in leading themarketplace is the App Store. It is a fascinating example of thecompetitive advantage created by adaptability. Building on theirspectacular success with the iPod and iTunes, Apple set aboutdeveloping the hardware and software to create another new mar-ket that didn’t exist before: the smartphone and the App Store. Nearly a half billion iPods later, it is hard to believe that tenyears ago no one had ever heard of an iPod. A few of us down-loaded digital music, but most of us were still carrying around CDs.But the iPod quickly became a necessity for people all over theworld. Apple created a fundamental innovation in the way thatmusic was delivered to consumers, building a new platform forrevenue generation and innovation that would carry the firm farinto the future. Apple was the intermediary between consumersand the music that they love. This set the stage for Apple’s entry into the smartphonebusiness with the launch of the first iPhone in June 2007.The iPhone turned the iPod into a touchscreen cellphone withinternet access. No longer would people need to carry a phoneand an iPod and still find themselves in need of access to theinternet to look up movie times or restaurant locations. Now itwas all in the palm of their hand. And it was a big bet that thefuture of cellphones would be differentiated not by ‘‘radios andattennas and things like that,’’ but instead by software.22 The betpaid off handsomely—by Q4 2008 Apple surpassed BlackBerrymaker Research in Motion to become the world’s third largestphone maker, after Nokia and Samsung. At first, developers created their own unsanctioned apps. Butin March 2008, Apple released a software development kit tohelp developers create their own apps. They also created a radicalset of rules for the App Store.23 It would cost developers $99 tosubmit an app, and they could charge whatever they wanted for
  15. 15. Denison c01.tex V2 - 04/23/2012 5:50pm Page 1414 LEADING CULTURE CHANGE IN GLOBAL ORGANIZATIONSdownloads. Apple would retain 30 percent of the sale price foradministration. The remaining 70 percent would go to the devel-oper. If the app were offered for free, Apple would take no com-mission. Apple itself would maintain the App Store, control theapproval process, and support the whole thing through iTunes. The App Store was launched with five hundred apps in July2008, to coincide with the global launch of the 3G iPhone intwenty-two countries. In the first year, nearly one hundred thou-sand apps were created, with two billion downloads to over twentymillion iPhones worldwide. By the time that this book is pub-lished, there will be over one million apps. Apple now estimatesthat the App Store generates more than $1 billion each year. Apple’s approach to innovation is deeply rooted in theirDNA. It has always been informed by a unique mindset thatfocuses on the ecosystem that surrounds their customers. Theirinnovations combine hardware and software with developers andconsumers in ways that create revolutionary markets. The AppStore connects the endless creativity of the developers withconsumers’ endless demand for software solutions, starting at aprice point of $.99 or less and building from there. With Apple asthe intermediary, Steve Jobs’s legacy of innovation will be withus for a long time to come.Ritz-Carlton Hotels: Involvement Creates CapacityRitz-Carlton hotels founder Cesar Ritz set the luxury standard forEuropean hotels in the early twentieth century. He said, ‘‘Neversay no when a client asks for something, even if they ask forthe moon. You can always try.’’ Ritz-Carlton’s ‘‘Three Steps ofService’’ set a high standard for five-star quality:1. A warm and sincere greeting. Use the guest’s name.2. Anticipation and fulfillment of each guest’s needs.3. A fond farewell. Give a warm good-bye and use the guest’s name.
  16. 16. Denison c01.tex V2 - 04/23/2012 5:50pm Page 15 BUILDING A HIGH-PERFORMANCE BUSINESS CULTURE 15 The Ritz-Carlton refers to their twenty-eight thousand peopleas ‘‘ladies and gentlemen, serving ladies and gentlemen.’’ Theirremarkable core values are well understood by their people,starting with the ‘‘Employee Promise’’ and the ‘‘Credo.’’ But perhaps the most remarkable part of all of this is what ittakes to actually do this: every day, all of the Ritz-Carlton ladiesand gentlemen participate in a daily briefing. All of their servicepeople, in all of their hotels, meet to discuss the incidents thatarose through the day, the actions that they took to address them,and how those fit with the Ritz-Carlton principles. This debrief isled by the local manager. The day’s incidents and actions are alsocaptured in their system so that they have a record of every guest’sexperience in each stay. That record can be used to anticipateand accommodate a guest’s experience, even if it is at anotherRitz-Carlton hotel. This allows the staff to achieve an unusualmark of distinction: they can create the same level of customerservice for each of their clients at each hotel. The preferencesthat are established for a client at one hotel can be applied acrossthe country or around the world at any time. A friend of mine tells a story of going out for a run whilestaying at a Ritz-Carlton hotel. The first time, when he cameback after the run, they asked him if he wanted something todrink. He asked for a bottle of water. The second time they hada bottle of water ready for him, and asked him if he preferredsparkling or still water! To his amazement, this knowledge of hispersonal habits and preferences followed him on to his next stayat another Ritz-Carlton hotel. We usually associate high-involvement work practices withflat, democratic organizations with few levels and few statusdistinctions. But this is one part of the Ritz-Carlton culturethat makes it an intriguing example: in order to thrive with ademanding clientele in a luxury segment of the market, they staketheir claim on bottom-up input! And they do walk the talk: eachof the ‘‘ladies and gentlemen’’ in their service operation has theauthority to spend $2,500 on the spot to resolve a guest’s concerns.
  17. 17. Denison c01.tex V2 - 04/23/2012 5:50pm Page 1616 LEADING CULTURE CHANGE IN GLOBAL ORGANIZATIONS Some might argue that you can afford to lavish such attentionon customers only when you are operating in a luxury segment ofthe market like the one that Ritz-Carlton serves.24 The averageannual income of their guests is over $250,000, and nearly halfof their guests are repeat visitors. Clearly, it is a big businessdecision to invest the time of both the managers and the staffin the daily debrief. But without this key part of the process,the good ideas would just remain good ideas. They wouldn’t beput into action as the cornerstone of a time-tested competitivestrategy that differentiates a Ritz-Carlton hotel from the rest ofthe pack in the luxury segment.Toyota: Consistency Is the Foundation for QualityToyota was created by the Toyoda Automatic Loom Works in1937 to produce automobiles. Their early history was one ofdifficult struggle, which required them to take advantage of everyopportunity they could find to reduce waste and use resourcesefficiently. Toyota’s culture grew organically for many yearsbefore the company attracted much attention. But by the 1980s,their world-class quality and conspicuous success led many totry to capture their essence and understand the huge leaps incompetitive advantage that Toyota had made on the rest of themanufacturing world. Today, the Toyota Way is one of the mostclearly articulated management philosophies in the world—thereis probably more written about Toyota than about any othercompany, with the possible exception of General Electric.25But, as many companies have found when trying to imitatethe Toyota Production System, it is much easier to describethe Toyota mindset and culture than it is to copy it. To quoteToyota’s former president, Fujio Cho: The key to the Toyota Way and what makes Toyota stand out is not any of the individual elements. But what is important is having all the elements together as a system. It must be practiced every day in a very consistent manner, not in spurts.
  18. 18. Denison c01.tex V2 - 04/23/2012 5:50pm Page 17 BUILDING A HIGH-PERFORMANCE BUSINESS CULTURE 17 We place highest value on actual implementation and taking action. There are many things one doesn’t understand and there- fore, we ask them, why don’t you just go ahead and take action; try to do something? You realize how little you know and face your own failures and you simply can correct those failures and redo it again and at the second trial you realize another mistake or another thing you didn’t like so you can redo it once again. So by constant improvement, or, should I say, the improvement based upon action, one can rise to the higher level of practice and knowledge.26 There are fourteen different elements to the Toyota Waythat have been clearly articulated in many different sources. Oneof the key factors is the reliance on ‘‘pull’’ systems that avoidoverproduction and force the organization and its supply chainto respond to the market demands. This helps them to createa continuous process flow that brings problems to the surface,levels out the workload, and forces them to stop to fix problemsso that they can get quality right the first time. This approach isalso extended to their partners and suppliers by challenging themand helping them improve. Toyota’s system has been built from their experience, overtime. Toyota develops leaders who thoroughly understand thework and live the philosophy. They rely on ‘‘visual’’ controls sothat no problems are hidden, and when there are problems, theyencourage leaders to ‘‘go and see for themselves.’’ Finally, they basetheir management decisions on a long-term philosophy; theymake decisions slowly through consensus but then implementthem rapidly. They have led the way in their industry inresolving the dynamic paradox between internal consistencyand external adaptability. They have done this by becoming alearning organization that has mastered relentless reflection andcontinuous improvement. Each of these principles is significant in its own right and isa required part of the overall system. It is a system created tomanage complexity in an efficient and predictable way through
  19. 19. Denison c01.tex V2 - 04/23/2012 5:50pm Page 1818 LEADING CULTURE CHANGE IN GLOBAL ORGANIZATIONSnearly flawless lateral coordination. Nonetheless, it can also berelatively simple once you develop the mindset that allows youto see the flow.27 ‘‘All we are doing is looking at the time linefrom the moment the customer gives us an order to the pointwhen we collect the cash. And we are reducing that time line byremoving the non-value-added wastes.’’28 Toyota has successfully transplanted the logic and cultureof their production system all over the world. This evolvingphilosophy has led Toyota from its original position as a strugglingautomaker in pre-war Japan to that of the largest and mostprofitable automotive company in the world. Moreover, Toyotamanufacturing methods are imitated by nearly every manufacturerin the world in hopes of reaching the levels of quality andconsistency defined by the leader. But in early 2010, Toyota faced their biggest challenge inyears. ‘‘Sudden acceleration’’ problems with Toyota vehiclesin North America made headlines all over the world and com-promised their reputation. Overnight, their stock price andsales dropped dramatically. Even though the technical issuesthat are at the heart of this problem have proven surprisinglydifficult to establish, one strong lesson does emerge from thiscase: when your reputation is built on quality and consistency, itis absolutely necessary to protect and defend that characteristicin order to preserve and, as necessary, rebuild your brand. Whenwe claim to live by our core values, people expect us to live upto them every day, without fail. These examples—IKEA, Apple, Ritz-Carlton, and Toyota—were all chosen to illustrate the importance of the principles ofmission, adaptability, involvement, and consistency. They areall remarkable success stories that show the power of theseprinciples and help to illustrate what these principles mean inpractical business terms. Leading Culture Change in Global OrganizationsThis book tries to address a big void in the literature aboutculture and leadership in organizations: What happens when you
  20. 20. Denison c01.tex V2 - 04/23/2012 5:50pm Page 19 BUILDING A HIGH-PERFORMANCE BUSINESS CULTURE 19try to change organizations? What works? What doesn’t? Is it allchance and charisma? Or is it all process, methods, measures, andstructure? Many authors have given us great principles for leadingchange in organizations.29 But very few have tried to systemati-cally track what works and what doesn’t so that we can learn moreabout how to create successful change in global organizations. Again, we have built this book around a set of seven casestudies from all over the world in which we have tracked orga-nizations and their leaders over time, studied the changes thatthey have made, and tried to understand the impact that thosechanges have had on the business. For each organization, weanalyzed ‘‘before and after’’ survey results to track the culturechange. This assessment is a central part of this book, and weuse this same approach in each chapter to track the progress thateach organization is making. So let’s take a minute to look at onebrief example and learn how to interpret these profiles. The four concepts in the culture model are measured througha sixty-item survey that produces a profile. This profile com-pares the results to a benchmark database of over a thousandorganizations.30 These sixty items measure the four culture traitsof mission, adaptability, involvement, and consistency. Each ofthese four traits is measured with three indexes, and eachof those twelve indexes is measured using five survey items.This analysis helps to identify the strengths and weaknesses ofthe organization’s culture and understand the impact that it maybe having on business performance. For those with more interestin this survey and the research that supports it, we have includeda detailed discussion in the Appendix, including an example thatshows the sixty items that make up the twelve indexes. The first rule for interpreting a culture profile is simple:more color is better. The scores on the profile show where theorganization ranks relative to the benchmark. For example, ascore of 9 on vision means that the organization ranks in the 9thpercentile, telling them that 91 percent of the other companiesin the benchmark database scored higher than they did on vision.
  21. 21. Denison c01.tex V2 - 04/23/2012 5:50pm Page 2020 LEADING CULTURE CHANGE IN GLOBAL ORGANIZATIONS When the executive team of the One-Hundred-Year-OldManufacturing Company looked at their results (see Figure 1.3),there was a long silence. The president, who had spent his careerin operations, said, ‘‘Well, I admit that I’m not a visionary or astrategist—I’m the guy who makes the trains run on time.’’ Whenthey focused on the results for consistency, they agreed that theiremphasis on internal control made it difficult to react to themarketplace. They agreed that they had strong core values, butthey also questioned whether they were the right core values forthe future. One of them spoke up: ‘‘Our core values are perfectlysuited for meeting the challenges of the 1980s.’’ Finally, when Figure 1.3. The One-Hundred-Year-Old Manufacturing Company External Focus Strate ational Direct gic aniz Org earning i & Int on L ent er G Ob oa om s je u c ls ives Fo t s Cu c & t 68 Chan g in ge 29 Visio 12 11 Creat nFlexible 18 Beliefs and 9 Stable Assumptions & I rd in a ti o n 12 Empowe ratio n 55 8 nteg rme o Co 63 nt 66 t en Or Te n am em ie ta 82 re tio n Ag Ca D e pa bility C ore velo s pment Va l u e Internal Focus
  22. 22. Denison c01.tex V2 - 04/23/2012 5:50pm Page 21 BUILDING A HIGH-PERFORMANCE BUSINESS CULTURE 21they looked at their results on team orientation, one of them con-cluded, ‘‘We’re a team all right—we’re all going down together!’’ These results helped this leadership team see that the systemthey had created made it hard to innovate and grow, even thoughthey still produced excellent quality products and were a goodemployer for many of their people. But the results also helped con-vince the leadership team that they were at the center of the prob-lem and that their actions had to be at the center of any solution. When confronted with this kind of result, most organiza-tions that carry out successful changes go through a change processthat looks something like the process depicted in Figure 1.4. The Figure 1.4. Leading Culture Change External Focus Strat e atio nal D i re c t g ic aniz O rg ea r ni n g & I nt on i L en t er G Ob oa om s je u c l s iv e s Fo t s Cu c & t 68 Chan g in ge 29 Visio 12 11 C r ea t n Flexible 18 Beliefs and 9 Stable Assumptions & I rd ina tio n 12 Empowe ration 55 8 nteg rme o Co 63 nt 66 t en O Te n am ri e em ta 82 re tio n Ag Ca D e p a bilit y C ore ve lo s pment Va l u e Internal FocusTrack Progress Identify the GapWhat’s worked? What needs What hasn’t? to change? Drive Action Build the Team How will we Who will lead get there? the change? Create the Vision How will the future look?
  23. 23. Denison c01.tex V2 - 04/23/2012 5:50pm Page 2222 LEADING CULTURE CHANGE IN GLOBAL ORGANIZATIONSsurvey results help to identify the gaps and define what needsto change. But to drive action, an organization needs to build ateam—a ‘‘guiding coalition,’’ in Harvard Professor John Kotter’sterms—that will create a vision of the future, and define theactions and the accountabilities that will get them where theywant to go.31 A commitment to tracking progress is also importantin order to bring some accountability to the change process. Asnoted management consultant Ram Charan put it, ‘‘There’s afine line between vision and hallucination.’’32 Tracking progressusually leads to another round of focused change. Each of theorganizations that we studied for this book has gone throughsome variation of this general change process. We were involvedwith the change process in each of these organizations and willgive you an overview of our role in each chapter. The Plan for This BookThis book is unique in that it is built around seven longitudi-nal case studies. We have followed the change process in eachorganization, and we have tracked that change process using‘‘before-and-after’’ survey results over several years to help high-light some of the key lessons about leading culture change inglobal organizations. We start in Chapter Two by looking atthe importance of supporting the frontline people in the orga-nization, using the case of Domino’s Pizza. Domino’s presentsan exciting story of the transition of a firm that had been ledby its founder for nearly forty years, through a Bain Capitalbuyout, a new CEO, a successful IPO, and the implementationof a strategy based on people as the primary source of compet-itive advantage. Chapter Three turns to the topic of strategicalignment and uses the examples of two European organizations.First, the German technology company DeutscheTech showsus how a clear alignment of the purpose, vision, and strategyacross organizational levels is critically important to the strat-egy implementation process. Chapter Three also examines the
  24. 24. Denison c01.tex V2 - 04/23/2012 5:50pm Page 23 BUILDING A HIGH-PERFORMANCE BUSINESS CULTURE 23implementation of a crisis-driven top-down strategic change atSwiss Re’s Americas Division. This example shows how changesthat have a real impact on day-to-day work are the most likelyto ‘‘stick’’ and to have a lasting effect. Chapter Four focuses onone of the most common topics in culture work: cultural inte-gration in mergers and acquisitions. Although firms realize thatit is hard to create scale without integration, they still struggle toget everyone around the world on the same page. This chapterfocuses on Polar Bank, a Scandinavian bank trying to integratethree different acquisitions and make one culture out of many. Chapter Five leads us to an even more complex topic: theexporting of culture change from the United States to Europe.GT Automotive, a UK-based firm, completes a successful trans-formation in their American division and then tries to exportthese changes back to their European organization. Chapter Sixfocuses on the challenge of building a global business in a devel-oping market. We examine General Electric’s efforts to buildtheir health care business in China and then use that platformto build a global business. In our final case study, we focus onthe challenges of creating a global corporation from a base in anemerging market by tracing the Brazilian mining company Valein their ten-year journey from being a department in the Braziliangovernment to becoming a global player. In our final chapter, wesummarize the key lessons for leaders about the magic and themethod of these transformation stories. We discuss these lessonsin terms of a new model of the rituals, habits, and routines thatlie at the heart of their organizations’ cultures. Fasten your seat belts!
  25. 25. “A milestone in the culture studies arena.” -Edgar H. Schein Daniel Denison’s newest book illuminates the cultural dynamics firms need to manage in order to remain competitive, including: • Supporting the front line • Creating strategic alignment • Creating one culture out of many • Exporting culture change • Building a global business in an emerging market • Building a global business from an emerging market PRE-ORDER THE BOOK NOW: Contact Katrina Lewis at or visit